The Samurai market's landscape changed dramatically after Lehman Brothers collapsed. The market that had provided financing when it was unavailable elsewhere saw a dramatic increase in risk-aversion, with tolerance for foreign credits almost evaporating. It took Triple A rated government guarantees from the most respected sovereigns to revive the market, which now appears to be heading in the right direction. Atanas Dinov reports.

In a year that has seen many bond markets enjoy the most frenzied issuance for years, the Samurai market has been relatively subdued. After bumper years in 2007 and 2008, when Japan was often one of the few markets where funding was available, 2009 year to date Samurai issuance stands at ¥1.101trn (US$12.27bn) according to data from Thomson Reuters, including a private deal from the Republic of Indonesia. This is just over 58% of last year's volume and around 55% of 2007 issuance, though it already surpasses 2006 levels by ¥537bn.

The pendulum looks to be swinging back again, principally because of the guarantees being offered by governments. The most prominent guaranteed public deal was Westpac's ¥201.3bn Samurai printed in February, guaranteed by the Commonwealth of Australia. It was a symbolic deal that reopened the public yen market, kick-stating a roster of high-grade foreign issuance. The deal saw huge demand, coming out at the limit of its shelf and becoming the fifth-largest Samurai ever – and the third-largest excluding self-led deals. Led by Daiwa SMBC, Nikko Citigroup and Nomura, it was accompanied by an additional ¥44bn Euroyen issue via Nikko Citigroup.

The Samurai was split into a ¥11.8bn three-year fixed piece with a 1.27% coupon at 40bp over yen Libor; a ¥133bn five-year fixed tranche carrying a 1.70% coupon at 70bp over; and a ¥56.5bn five-year FRN paying 70bp over three-month Libor. The Euroyen priced at the same level as the three-year Samurai tranche.

Both sell and buy-side investors were comfortable with Australian sovereign risk. The Samurai’s domestic structure was essential, widening the Japanese investor universe beyond the limited number that participated in the Australian banks' modest-sized guaranteed Euroyens issued in December 2008.

When Westpac had closed, ANZ came to market with a guaranteed public deal. It was part capped as a ¥150bn five-year dual-trancher via the same leads, alongside a ¥30bn 3-1/2-year retail Samurai, through Nikko Citigroup.

The US dollar/yen basis-swap has been in deeply negative territory throughout the year. With the proceeds from these Samurais mostly swapped out of yen, Australian banks faced a deteriorating cost of funding, a situation that deterred National Australia Bank, another potential issuer.

The Aussie Samurais, however, did pave the way for three chunky Australian Euroyen private placements in May: Macquarie Bank, CBA and NAB each issued ¥100bn five-year floaters. The deals were done privately to avoid the punitive swap dynamics moving against potential deals. Being quicker to execute, the Euroyen format helped ensure the unfavourable US dollar/yen basis swap did not move further against the deals.

"If you have to do a deal, it is better to do a private one now, unless the issuer wants to do a very visual deal, diversify the investor base and perhaps aim for a larger size," said one DCM banker in May. Private deals also help large investors maintain a low profile on their foreign credit investments.

Shiny, high-grade rarity

With the benefit of hindsight, many fixed-income bankers believe Japanese investors missed the opportunity to buy foreign bank government-guaranteed bonds in G3 currencies, when these were at attractive levels over Libor. The foreign credits that followed soon after the guaranteed supply were all rare names with Triple A ratings – predominantly European high-grade issuers – to some extent offsetting the pain when proceeds swapped back to euros.

At the end of February sole-lead Mizuho brought Export Development Canada’s first Samurai since November 1995. The ¥31.6bn five-year floater priced at 35bp over three-month yen Libor. EDC avoided the basis by keeping the yen.

After completing its maiden foray in the Samurai market in June 2008, Rabobank returned in February this year with its second ever Samurai - a ¥27.5bn five-year FRN at 140bp over three-month yen Libor - through joint leads Daiwa, Mitsubishi UFJ and Mizuho.

The largest public-sector lender in the Netherlands, BNG, returned after an 11-year absence, selling a ¥30bn five-year fixed note priced at 65bp over, joint-led by Daiwa and Mizuho.

In mid-April, Spain's ICO started the ball rolling for the Japanese fiscal year 2009 with its maiden vanilla Samurai, an oversubscribed five-year dual-trancher capped at ¥50bn; a ¥22.9bn 1.67% fixed tranche at 60bp over; and a slightly larger ¥27.1bn floater priced at 68bp over three-month Libor. This deal was handled by Daiwa, Mitsubishi and Mizuho.

Austria's export financing agency, OeKB reestablished its relationship in Japan brining its first unstructured Samurai in almost 20 years. The ¥80bn five-year dual-tranche trade in June came via joint-leads Mitsubishi, Mizuho and Nomura. The more popular fixed tranche, driven by a few large orders from key investors, came out at ¥67.7bn. The note carried a 1.35% coupon equating to 35bp over while a ¥12.3bn FRN pays three-month Libor plus 45bp.

The Dutch international development bank FMO picked Japan as strategic financing offshore hub along with the Swiss market, according to Erik van Dijk, director financial markets at FMO. The debut transaction emerged as an increased ¥40bn five-year fixed piece at 38bp over via Daiwa and Mizuho. The issuer carries no explicit government guarantee, but derives its Triple A S&P rating from bilateral government financing, amounting to 51% of its funding needs. That implicit guarantee attracted Japanese investors.

"The theme of the year for the international yen market is that it was a year powered by SSA and government-guaranteed deals. There was not much corporate supply and those that issued were rather an exception," said one syndicate banker at a leading Japanese house.

In July, EDF reopened the corporate space. Its Double A rating (and Triple A assigned from JCR), coupled with the French government's 84.7% ownership and the slight premium paid over euro secondary levels, ensured solid response for the ¥110.4bn Samurai, issued across three, five and seven-year maturities. Winning the mandate on a back of a banking relationship associated with a loan in 2008, Mitsubishi UFJ solely managed the successful deal.

Wal-Mart also returned with another triumphant Samurai after its debut last year. Capped again at ¥100bn, the five-year dual-tranche offering came out as a ¥83.1bn fixed note with a 1.49% coupon priced at 55bp over and a ¥16.9bn FRN at six-month Libor plus 60bp, led by BNP Paribas, Mitsubishi and Mizuho. The spread on the fixed tranche was 5bp wider than last year's note, but Wal-Mart was understood to have kept the proceeds in yen to term-out short-dated bank loan facilities. The coupon on its five-year piece was therefore 52bp tighter than in 2008, a defensive move that was well received by investors reeling after the Lehman Brothers collapse.

Between the only two corporate deals to date, Barclays issued a ¥52.7bn three-year two-part deal, marking the return of pure private bank unguaranteed, senior stand-alone issuance in Samurai format.

Although perceived to be on the ‘winning team’ of British banks, pricing was close to the wide end of the initial guidance of 120bp–140bp over for the fixed and 125bp–145bp over for the FRN, investors still showing some resistance towards FIGs. The deal was split into a ¥19.2bn fixed piece with a 2.09% coupon at 138bp over and a ¥33.5bn floater at six-month Libor plus 143bp.

And in mid-September HSBC priced the largest non-government guaranteed Samurai since the collapse of Lehman. The two-part, five-year trade led by HSBC Japan, Mitsubishi and Mizuho carried a ¥89.8bn fixed tranche, coming at 60bp over, with a 1.49% coupon and offered at par; and a ¥29.6bn floater paying three-month Libor plus 70bp. Pricing both tranches at the tight-end did not hinder a broad investor participation.

Closer to home

Korean borrowers used to be among the most active Asian issuers in the Samurai format. Yet this year only KDB has tapped the market. The Korean policy bank sold a ¥30bn three-part deal in September, meeting a better than expected reception despite most of the traditional Samurai investors staying on the sidelines.

"Timing was a big issue for KDB to achieve competitive levels to the dollar deal," said a funding official at the South Korean policy bank at the time of pricing. "As the first Single A and Asian Samurai [excluding Australian issuers] since Lehman's collapse, we believe the deal will help the Samurai market's recovery and broaden Japanese accounts' investment spectrum."

It might have worked. Other Korean banks, including non quasi-sovereign entities, are rumorued to be eyeing the market in order to diversify their funding currencies.

The ¥500bn Japanese government-funded Market Access Support Facility initiative was initially conceived to help emerging market Asian countries access capital markets. Under MASF, the Japan Bank for International Cooperation will guarantee 95% of sovereigns' newly issued debt in the Samurai market.

So far there has only been one deal issued under MASF. On July 17, Indonesia printed a ¥35bn 2.73% 10-year private Samurai, priced around yen Libor plus 135bp, via leads Nomura, Daiwa and Mitsubishi. The final issue size was smaller than expected, but all-in the deal was cheaper for the sovereign than going for a US dollar Global route. Its US$1bn 11.625% March 2019s traded some 20bp to 30bp wider.

The next JBIC-guaranteed deal is expected to come from the Philippines, though there is a talk that JBIC is looking to expand its guarantee outside of Asia.

"Now that the FDIC and other countries' government-guaranteed issuance flow has died out, it is pretty good timing to bring these JBIC-guaranteed deals. They will not be facing competition," said Tetsuo Ishihara, senior credit analyst at Mizuho Securities.